Agricultural Insurance Company's Ethical Risk Prevention Design

The development of national agricultural insurance system is an important part of a country's agricultural developments.For the governments,the agricultural insurances system is directly related to the regional economic development.It is also an important part of the national insurance industry.Different from the commercial insurance,agricultural insurance is a kind of policy which plays a key role to protection agriculture.However,there exists serious moral hazard in both the insurance companies and the insured farmers due to the serious information asymmetry between the farmers and agricultural insurance companies.Particularly,the existence of the moral hazard behavior of peasant household,will seriously hinder the efficiency and development of policy-related agricultural insurance in our country.On the other hand,the moral risk guard legal vacuum for policy-maker,lack of corresponding legal punishment and supervision mechanism contributed to the moral hazard.Therefore,the insurance company need to fight against moral hazard from the insurance contract designing.In the perspective of Anhui Guoyuan agriculture insurance company,we give comprehensive analysis of the development of agricultural insurance in China and the academic researches,and introduce the theory of agriculture risk and risk management.On this basis,we use the game theory to analyze the actual process of agricultural insurance,and proved that when maximizing personal utility,the insured farmers do have ex-ante moral hazard problem and ex-post moral hazard problem.Facing the two moral hazard problems in agricultural insurance,this article investigate how to design the agricultural insurance mechanism to enhance insured farmers' effort investment level and to prevent insured farmers from announcing a higher hazard loss than their actual loss.In this mechanism design,the insurance companies can reduce farmers' moral hazard and get the normal profits of the insurance companies.In the game theory analyzing farmers' behaviors,we find that in ex-ante moral hazard farmers will reduce their efforts investments;in ex-post moral hazard the farmers have the motivation to announce a higher loss than the true loss in agricultural disasters.We design the risk defense contract based on the insured farmers' moral hazed behaviors.We give the optimal conditions and discuss the risk sharing situation,the optimal agricultural insurance rate and the optimal compensation mechanism at optimal insurance conditions.The findings show that in ex-post moral hazard,the agriculture insurance company could reduce the moral hazard behavior through passing risk to the insured farmers,in which way the farmers will enhance the effort investments.In ex-post moral hazard,the company could reduce moral hazed behavior through economic punishment,supervision and insurance fee adjust to design the optimal contract which will effectively reduce the ex-post moral hazed behavior.This research on insurance contract against moral hazard not only reduces the insured farmers' moral risks and guides credit consciousness,it also increases the profits of the insurance companies.It provides the policy-support agricultural insurance companies,such as the Guoyuan agricultural insurance companies,the theoretical insights when design their insurance contracts against insured farmers' moral hazard.